Turkiye Finans is the originator of the Sukuk; and, certificates will be issued by a fully-owned SPV established in Turkey. The SPV will use 51% of the proceeds to acquire the beneficial interests and rights in a pool of leasing assets from Turkiye Finans. The profit from these assets will be distributed to the Sukuk investors. Turkiye Finans (as managing agent) will actively manage this portfolio and ensure that profits are in line with the entire expected return on the Sukuk. The remaining 49% of the proceeds will be used to execute a commodities-based murabaha transaction between the SPV and Turkiye Finans.

KEY RATING DRIVERS

The ‘BBB(EXP)’ expected rating assigned to the Sukuk is driven solely by Turkiye Finans’ Long-term foreign currency Issuer Default Rating (IDR) of BBB’ as the Sukuk structure is viewed as an originator-backed/asset-based structure.

According to Fitch’s criteria, the Sukuk rating is directly linked to Turkiye Finans’ Long-term IDR.

The originator backing is based on: i) Turkiye Finans’s payment and performance obligations under the Sukuk transaction documents ranking pari passu with its other future or present senior unsecured debt obligations; ii) Turkiye Finans’s irrevocable undertaking to purchase the relevant leasing assets from the SPV and settle the murabaha transaction, including the agreed profit rate, on the scheduled or any earlier dissolution dates; and iii) on any periodic distribution date, Turkiye Finans (as managing agent) is obliged to actively manage and generate the necessary returns from the Sukuk assets that would be sufficient to cover the periodic distribution payments to Sukuk holders. A failure to do so would trigger a dissolution event and enforce Turkiye Finans to pay the entire sum of the outstanding deferred sale price (which also includes the unpaid portion of the profits).

Fitch understands that certificate holders have a beneficial interest in the cash flows generated by the underlying assets, but do not have recourse to those assets. As such, the sukuk are asset-based not asset-backed.

By assigning a rating to the issue, Fitch does not express an opinion on the Sukuk structure’s compliance with Shariah principles or whether the relevant transaction documents are enforceable under any applicable law, including, without limitation, English and Turkish law.

RATING SENSITIVITIES

Fitch would expect the Sukuk rating to move in tandem with, and be sensitive to any change in, Turkiye Finans’ Long-term foreign currency IDR, which is, in turn, driven by Fitch’s view of potential support from its majority shareholder. Turkiye Finans engages in interest-free banking - primarily with SMEs and corporate clients. It is a small but growing bank, owned 66.3% by the The National Commercial Bank (‘A+'/Stable) of Saudi Arabia.